Polish private pension funds (OFEs) will transfer nearly half of their assets to the state-run pay-as-you-go social security system, Prime Minister Donald Tusk announced at a press conference with Finance Minister Jacek Rostowski and Labor Minister Władysław Kosiniak-Kamysz.
Mr Tusk has presented the government proposal for the future of open pension funds which will see OFEs assets held in treasury bonds transferred to the state social security system ZUS. That will account for some 51.5 percent of the entire value of their assets. Mr Tusk said that the private pension system has “turned out to be too costly,” and added that “the impact of OFEs on public debt is overwhelming – it is making it impossible to focus on public investments.”
OFEs will keep the remaining portion of their portfolio, roughly 48.5 percent, which is invested in the stock market. “OFEs’ contribution to economic growth consists in their activity on the stock exchange,” Mr Rostowski said, explaining the ministry’s rationale behind the decision.
The government is also claiming the new system will “liberalize” private pension funds. OFEs “will also no longer be allowed to invest in treasury bonds or debentures guaranteed by the state,” Mr Rostowski stated. Labor Minister Kosiniak-Kamysz explained, however, that they will still have the option of investing in corporate or local government bonds.
Safety above all
The prime minister also stressed that one of the primary goals of the reform was to ensure that future pensions are secure. In order to do that, the proposal will allow Poles to choose whether they want a portion of their pension contribution to remain in the OFE system, or if their entire pension contribution should go to ZUS.
“Our goal was to limit the risk to an absolute minimum,” the prime minister said, and explained that Poles who “choose to keep playing the stock market game” will have three months to submit a declaration to ZUS. If they don’t, they will automatically be transferred to the state-run system, together with their entire OFE savings.
Additionally, 10 years prior to reaching retirement age, a person’s pension savings will be gradually transferred to ZUS. The first tranche, scheduled for 2014, will involve moving zł.10 billion from OFEs to the social security system.
Mr Tusk stressed that the government’s intention is not to nationalize private businesses, but to ensure the safety of future pensions. “We have decided that nationalization is not the best solution ... The state should not give in to the temptation of nationalizing private assets,” the PM said.
Analysts are wary of the decision to limit the scope of private pension funds and the consequences it may have on the economy. Already the Treasury is having a hard time finding buyers for its stakes in state-controlled companies. Traditionally, OFEs were one of the major investors in state-controlled firms, but are now more likely to sell shares from their own portfolio than acquire new ones.
“The withdrawal of OFEs from the stock market will increase the supply of listed companies’ shares. Their prices will thus fall,” Witold Michałek from Business Centre Club told the Polish Radio.
Today OFEs hold stakes in over 200 companies worth some zł.103 billion. Altogether OFEs’ assets under management are valued at zł.272 billion.
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